Daily Excelsior Readers Write 22/11/16
Centre’s decision of scrapping the currency notes of 500 and 1,000 denomination is aptly termed as a revolutionary step. Even Supreme Court upheld the objectivity behind such move and refused to stay government’s decision of demonetisation. While EU stated that this will strengthen Indian economy and spur growth, global economic analysts and financial services are suggesting other nations to take a cue from it like the Swiss financial services, UBS Group’s advisory to Australia. It’s outcome would indeed have multi-pronged benefits for the economy. In India, only 3% (approx) citizens pay tax, demonetisation have tendencies to improve tax compliance by bringing people in the formal banking system neutralizing black and unaccounted money in the country to an extent. Counterfeit money printed and pumped by Pakistan and circulating within Indian boundaries funds terrorist activities. Maoist activities will suffer a setback as police claimed that they have hundreds of crores in cash concealed. Naxals reportedly have 7,000 crore stashed in the Bastar region. Their businesses likely to blown out with this single strike.
One of the key takeaways is it will boost the ailing Banks, which collectively bear an insurmountable non-performing asset (NPA) onus of Rs. 4L crore. Demonetisation will be an act of capital infusion to such ailing banks through two ways. Firstly, through encouraged investment in their shares in stock market. Shares of public sector banks (PSBs) already started surging up on the Nifty PSU Bank Index. Secondly, this would benefit banks through an increase in deposits as predicted by Moody’s. NPA has always been tabled as the reason by banks for the failure of transmission of policy rate cuts by central bank into the bank lending rates. Thus, once banks regain health, lowered lending rates and enhanced interest rates on saving and fixed deposits can be expected.
Without disregarding the short-term inconveniences being faced by common people and a temporary stagnancy in economy, such a bold and decisive step has the potential to bring more transactions under tax net, both direct and indirect taxes would move up, more digital transactions will take place and reduction in parallel economy will increase the size of formal economy as more people will disclose income and pay taxes. Short term remedial measures like swift calibration of ATMs and more cash supply should be taken care of immediately.
Centre’s decision of scrapping the currency notes of 500 and 1,000 denomination is aptly termed as a revolutionary step. Even Supreme Court upheld the objectivity behind such move and refused to stay government’s decision of demonetisation. While EU stated that this will strengthen Indian economy and spur growth, global economic analysts and financial services are suggesting other nations to take a cue from it like the Swiss financial services, UBS Group’s advisory to Australia. It’s outcome would indeed have multi-pronged benefits for the economy. In India, only 3% (approx) citizens pay tax, demonetisation have tendencies to improve tax compliance by bringing people in the formal banking system neutralizing black and unaccounted money in the country to an extent. Counterfeit money printed and pumped by Pakistan and circulating within Indian boundaries funds terrorist activities. Maoist activities will suffer a setback as police claimed that they have hundreds of crores in cash concealed. Naxals reportedly have 7,000 crore stashed in the Bastar region. Their businesses likely to blown out with this single strike.
One of the key takeaways is it will boost the ailing Banks, which collectively bear an insurmountable non-performing asset (NPA) onus of Rs. 4L crore. Demonetisation will be an act of capital infusion to such ailing banks through two ways. Firstly, through encouraged investment in their shares in stock market. Shares of public sector banks (PSBs) already started surging up on the Nifty PSU Bank Index. Secondly, this would benefit banks through an increase in deposits as predicted by Moody’s. NPA has always been tabled as the reason by banks for the failure of transmission of policy rate cuts by central bank into the bank lending rates. Thus, once banks regain health, lowered lending rates and enhanced interest rates on saving and fixed deposits can be expected.
Without disregarding the short-term inconveniences being faced by common people and a temporary stagnancy in economy, such a bold and decisive step has the potential to bring more transactions under tax net, both direct and indirect taxes would move up, more digital transactions will take place and reduction in parallel economy will increase the size of formal economy as more people will disclose income and pay taxes. Short term remedial measures like swift calibration of ATMs and more cash supply should be taken care of immediately.
